Out of hibernation: after hitting bottom in 2002, freight car orders are on an upswing that's expected to last through at least 2009. Builders also are offering new models to supplant older technology

Railway Age, Sept, 2004 by Marybeth Luczak

Component suppliers aren't immune either. "We buy scrap metals and steel products to run our foundries and we're seeing significant increases in scrap prices--double what we were seeing a couple of years ago," points out Wabtec's Pontious.

Industry insiders anticipate the shortage to last another 12 months, with the possibility, of foreign competition entering the market. And while they expect prices to drop in mid-2005, they aren't holding out hope for a return to earlier levels.

Fewer U.S.-based castings companies and an industry-wide bolster replacement program (due to last year's recall of defective Mexican-manufactured units) also have put a crimp in the market. Satisfying demand with more imports may prove problematic later on, some say. "Currently, there are castings coming from China that are enough for 10,000-15,000 carsets," Jim Unger, president of American Railcar Industries, told attendees of the CIT Rail Resources annual customer conference last month. "But if the Chinese economy picks up, China will need castings for its own purposes, and that may affect the shortage here."

But U.S. suppliers are taking on the challenge. "As an industry, we will be able to meet demand," said William O'Donnell, vice president-sales and marketing of Amsted Rail Group, at the ARCI meeting. "But it's not like flipping on a light switch. We'll be in better shape to support a 60,000-car market by the tail end of 2005." The supply base is "coming back," agrees Bill Bourque, vice president-marketing for the Greenbrier Companies. "We have taken a proactive position on that with our investment in the castings business (Ohio Castings)."

* Tractor trailer availability is another issue. "There's been a shortage of trucks as the economy conies back into gear," says Trinity's Graham, noting that the new hours-of-service rules have put a damper on delivery schedules. "It's a real issue if a component supplier can't get truck transport to move its finished railcar doors," he points out.

Get out your checkbook

As manufacturing costs increase, so, too, do customers'. "Everyone's cost of new cars is up significantly from nine months ago," says Bourque. Pricing, however, has been tricky. "Scrap steel surcharges always come in late, so we don't always know what our costs will be," explained John Carroll, president of Johnstown America, at the CIT conference. "That's why we've been forced to go to flexible pricing. We would want to be able to offer fixed prices, but that's not possible right now." ARI has included price escalation clauses in its contracts. "The price of steel can change in as little as 60 days," noted Unger at the same conference.

By year-end, Trinity will have absorbed about $37 million in additional material cost increases that were not passed on to customers due to fixed-price rail (and barge) contracts. But "since we are raising our prices on sales orders and negotiating escalation clauses in our sales agreements, our exposure to fixed-price contracts diminishes each quarter and is expected to be substantially reduced in 200S," Wallace said during his announcement of the company's latest performance results.